Real Estate (Regulatory and Authority) Act, 2016- Blessing to Home Buyers or Builders

Brief Introduction

The Real Estate (Regulatory and Authority) Act, 2016 is an Act of the Parliament of India which seeks to protect home-buyer as well as help to boost investment in the real estate sector. The bill was passed by Rajya Sabha on March 10th, 2016 and by Lok Sabha on March 15th, 2016 and came into force from May 1st,2016 with some sections and rest is applicable from May 1st 2017. The RERA is applicable to the whole of India Including the Union Territory of Jammu and Kashmir and the Union Territory of Ladakh. This act is retroactive in its character.

Scope

RERA, 2016 is applicable to all commercial and residential real estate (including potted development). All residential property is required to be registered whose measuring is more than 500 sq. meters or more than 8 apartments. All promoters, builders, real estate agents & brokers have to take a license from State Authority. RERA applies to real estate projects, promoters, allottees and real estate agents. It is NOT applicable to renovation, repair, or re-development projects as that will not involves any promotion, selling and new allotment.

Objective

• To establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector; and
• To ensure the sale of plots, apartments or buildings, as the case may be, or the sale of real estate projects, in an efficient and transparent manner; and
• To protect the interest of consumers in the real estate sector; and
• To establish an adjudicating mechanism for speedy dispute redressal; and also
• To establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of –

1. The Real Estate Regulatory Authority; and
2. The adjudicating officer; and

for matters connected therewith or incidental thereto.

How safeguarding provisions affect the Buyers

Designated Project Account

Builders should open a designated bank account in a scheduled bank. 70% of the amount realized from the allottees (customers) must be kept in a designated account. The promoter shall withdraw the amounts from the designated account, to cover the cost of the project, in proportion to the percentage of completion of the project. Any withdrawals by the promoters must be certified by an engineer, an architect and a chartered accountant in practice. Any non-compliance in this regard shall liable to a penalty that may extend up to 5% of the estimated cost of the real estate project, as determined by the Authority.

Details Disclosures of Project

Promoters need to register existing and new projects before the commencement or advertising of the project.

Promoters have to make an application with the following details:

• a brief detail of his enterprise ;
• details of projects launched by him in the last 5 years (all types of projects like developed, completed, delays in project) ;
• sanctioned plan, layout plan and specifications of the project;
• plan of development works to be executed in the project and other facilities;
• location details of the project;
• proforma of the allotment letter, agreement for sale, and the  conveyance deed;
• the number, type and carpet area of apartments for sale in the project.
• the number and area of garages for sale in the project;
• the names and addresses of his real estate agents;
• the names and addresses of the contractors, architect, and structural engineer;
• provide a declaration supported by an affidavit stating that he has legal title to the land; that the land is free of all encumbrances; that the timelines will adhere and that 70% of receipts will be deposited in the project account.

Additions and Alterations

This clause ensures that promoters do not alter the original project without informing the buyer.

Changes in design & structure	Authorized & Approved by	Inform to
Minor Changes	Architect or Engineers	All the Allottees
Major Changes	All the Allottees affected by the change	All the Allottees
Other Changes	At least 2/3rd allottee	All the Allottees

Specifying the exact carpet area is mandatory

The carpet area is the net usable floor area of an apartment plus the internal walls, which excludes size of external walls, services shafts, exclusive balcony or verandah area and exclusive open terrace.

Carpet Area = Net useable Areas

Built-up Area = Carpet Area + Area of wall

Built-up Area = Built-up Area + Common Area Areas

If any change in the carpet area, it would be informed to the allottees.

If there is a decrease in the carpet area, the promoter has to refund the amount on a pro-rata basis to buyers, however, in case of an increase in the carpet area, the buyer has not had to pay an additional amount to the promoter.

Others Safeguarding Provisions

Structural Defects:

Builders are liable to rectify any structural defects brought to his notice within 5 years from the date of possession by the allottees and the same shall be rectified within 30 Days from such notice free of cost.

False Advertisement

If the buyer purchases through false representation or advertisement then he has the option to exit the project. The developer will have to return the money to the respective buyer along with interest.         

Webpage

Promoters have to develop webpage on the website and render all details of the project for public viewing.

Booking Fees

Application or booking fee cannot be more than 10% of the cost of the apartment, plot or building, as the case may be. Before accepting such money, an agreement for sale must be entered into.

Failure to give Possession

The promoter is liable to give compensation to allottees if the promoter is unable to give possession as per the agreement of sale.

Transfer of project

No such transfer of assets and liability can be done to 3rd party, without the consent of 2/3rd allottees.     

Continual Disclosures

Builders have to make a periodic submission to authority regarding progress and Home buyers will make able to watch the progress of real estate properties.

How RERA safeguarding the Builders/Promoters

Allottee shall be responsible to make the necessary payments on time and at the proper place. If any failure, then the allottee shall liable to pay interest. They shall take physical possession within 2 months of the occupancy certificate issued for the said apartment. They shall be responsible to pay interest for any delay in payment towards any amount required to be paid by him.

Conclusion

With the implementation of RERA not only will allottee interests will be protected but builders will also benefit from greater transparency. The concept of RERA is flawless if implemented as is, but due to non-compliance with the rules by some states and developers, it becomes extremely difficult to fulfill the exact purpose of RERA. In fact, regulation has always helped a market to develop more significantly as we have seen in the case of capital markets. For the real estate market that is plagued by overcapacity, this will surely be a blessing in disguise.